Would you not insure one of your biggest investments? According to a study conducted in 2013 by Abacus Data, approximately “61 per cent of Canadian condominium (“Condo”) owners don’t know [if] or incorrectly assume [that] their building’s insurance will cover damage to another unit from water or fire that originated in their unit, potentially rendering them personally liable and putting them at financial risk.” This study illustrates a real and significant problem facing the condo community.

This issue is even harder to comprehend when you factor in the number of insurance companies that offer products tailored to meet the needs of the condominium community. Condominium unit owners insurance policies have been designed to fill in the gaps of insurance left by the corporation’s policies. The condominium corporation’s declaration or its Standard Unit By-Law (S.U.B.) will define what is insured by the corporation’s insurance policy. Any insurable items not listed in the declaration or S.U.B. can be covered by the unit owner’s insurance policy.

This sounds simple enough, right? So why are such a large percentage of unit owners exposing themselves to financial risk? The answer is misinformation. An example of this is illustrated in the following question that I am confronted with at 99 percent of all town hall meetings I attend: “If my property is damaged by an event that I didn’t cause, then will the individual responsible for the damages pay for my losses?” This logic seems flawless to the uneducated consumer; however, the reality is that any insurable items not listed in the S.U.B. are the sole responsibility of the unit owner, regardless of who caused the loss. This gap of coverage could easily be avoided if the owner had unit owners insurance.

Loss Assessment Coverage is an example of how the unit owner’s policy will respond to a potential gap in coverages. This coverage will respond if the corporation approves a special assessment because the corporation’s insurance is unable to pay for an insurable claim, either because the insurance is inadequate or exhausted. How likely is this event to occur? It is quite possible. For example, if the corporation’s policy is cancelled for nonpayment and during this lapse in coverage a claim occurs, the loss would be the passed on to the unit owners as a special assessment. The unit owners’ loss assessment coverage would respond to this assessment, whether it was a property or liability claim.

Another question I am often asked at town hall meetings is, “Why do I need sewer backup coverage if I don’t live on the ground floor?” Once again this logic seems flawless, but it has created financial nightmares for many unit owners. Municipal By-Laws are very clear with respect to sewer water—anything that is touched by sewer water must be removed from the unit as it can spread disease. Consequently, sewer backup claims can be very expensive and are not uncommon in high-rise condominiums. Sewer backup claims can occur on any floor; if a stacking line gets blocked, this will cause the sewer water to back up in the units above. This coverage is usually added by endorsement, meaning that it has to be added to a unit owner’s policy. A broker will advise the unit owner to add this coverage; however, many unit owners will decline this endorsement believing the coverage is not needed.

Unit owners insurance comes with deductible coverage, which deals with another potential gap in coverage. Insurance companies use deductibles as a means of mitigating losses. For example, deductibles can be used to reduce the financial impact of a loss or to deter clients from submitting nuisance claims. Consequently, if a corporation has experienced numerous claims, it is common practice for the insurance companies to increase deductibles. In some circumstances, the deductibles can be quite harsh. If the building has suffered numerous large water damage claims, for instance, the insurance company can demand water damage deductibles as high as $100,000. 

How does this affect the unit owner with respect to insurance? Currently, the Condominium Act (Condo Act) allows the corporation to collect the deductible from the unit owner: “If an owner, a lessee of an owner or a person residing in the owner’s unit with the permission or knowledge of the owner through an act or omission causes damage to the owner’s unit, the amount that is the lesser of the cost of repairing the damage and the deductible limit of the insurance policy obtained by the corporation shall be added to the common expenses payable for the owner’s unit. 1998, c. 19, s. 105 (2).”Therefore,the corporation can charge back the deductible to the unit owner who caused the claim, either through an action the unit owner performed or an action they failed to perform. Deductible coverage will respond to this loss. However, it is very important that the unit owner continually monitor the corporation’s deductibles to insure that their deductible limits match the deductible limits of the condo corporation.

There is no doubt that condominium insurance has inherent complications. Almost every claim is being processed by two different adjusters, insurance companies, and policies. The condominium corporation is forced to adhere to the guidelines set forth in the Condo Act and maintain adequate insurance; however, there are no laws or regulations in place that force unit owners to purchase homeowners insurance. The good news is that there are a lot of proactive boards and property management teams which are continually promoting town hall meetings to educate their communities, but at the end of the day, it is incumbent on the unit owner to address these issues or face unforeseen financial losses.

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